With TIF’s sketchy magic no longer fooling Kansas Citians, a developer and a grocery dynasty took their show to Smithville
Jeff Becker has seen some TIFs in his day.
In 2001, Becker founded the Arts Incubator, a nonprofit offering studio space and business advice to emerging artists. It was located at 115 West 18th Street, in the heart of what we now call the Crossroads Arts District. Today, the Crossroads is where Kansas Citians go to drink a $14 cocktail served by a man in a vest. Back then, the view from any Arts Incubator window was one of blight and post-industrial decay. The neighborhood was decidedly pre-gentrification: high crime, abandoned buildings, a thin advance of artists and other brave pioneers.
To attract further waves of such persons and businesses to the Crossroads (and elsewhere), Kansas City has, in recent decades, used a handy magnet called tax-increment financing — in short, a tax break for developers. Under a TIF deal, a developer agrees to build something new on a blighted property; in exchange, the city freezes the taxes on that property for a certain period of time (often as long as 23 years). Thus, as the assessed value of the property increases (because it has now been developed and is therefore more valuable), any “new” tax revenue is returned not to the usual recipients of taxes (the school district, the county, the city, the library, etc.) but rather to the developer.
In addition to running the Arts Incubator, Becker also served for nearly a decade as a board member of the Crossroads Community Association. In that capacity, he regularly examined TIF proposals from developers seeking financial incentives in order to renovate old properties in the Crossroads.
“On the board, we’d assess each proposal as to whether it was thoughtful, what it would bring to the community, did it make sense to claim the property was blighted, etcetera,” Becker says. “We didn’t technically have any say in the final decision, but we developed a relationship with the city where, anytime a new development plan surfaced in the Crossroads, the city always came to us and asked us whether we endorsed it.”
That scrutiny didn’t keep a number of questionable TIFs from being handed out in the Crossroads over the years, but some of the more egregious plays were halted by engaged citizens (and journalists).
Citizens in more far-flung parts of the Kansas City metro have historically been less sophisticated about matters of urban planning. This is true of Smithville, where Becker and his family moved in 2011, following the closing of the Arts Incubator. With his kids approaching school age, Becker and his wife wanted to settle down in a place with, he says, a “really good school district and a small-town feel.” Smithville fit the bill.
“At the time, they had just approved a bond to build a performing-arts center,” Becker says. “It made me feel like they had interest in advancing the arts. The priorities in Smithville just seemed right to me, from what I could tell.”
In addition to purchasing a home in Smithville, Becker bought a building downtown and converted it into an arts space and coffee shop called Three Link Gallery. Along with Jonathan Justus, owner of the well-regarded farm-to-table restaurant Justus Drugstore, he hopes to bring, as he puts it, “the creative culture of the Crossroads into the more small-town type of setting of downtown Smithville.”
There’s little sign of that yet. Many of the old buildings downtown sit vacant. Foot traffic is virtually nonexistent. There is scant evidence of a burgeoning arts scene. But one vestige of the Crossroads has followed Becker to Smithville: TIF. And neither he nor Justus is happy about it. Neither is the school district. Neither, in fact, are numerous other locals.
Smithville, home to its popular namesake lake, straddles Clay and Platte counties 30 miles north of downtown Kansas City. Most commercial activity there lies along U.S. Highway 169. About a mile south of its Main Street, on 169, lie several dozen acres of undeveloped land. The only structure on this land is a brick-and-stone monument with the words “Smithville Commons” on it. You can see it from the road.
Back in the mid-2000s, Smithville planned to build a 28-acre development on this land. It was to contain a 100,000-square-foot anchor tenant (probably a Lowe’s or a Home Depot), a 60,000-square-foot big-box retailer (perhaps a grocery store) and four pad sites for restaurants and other commercial use. The developer requested a TIF from Smithville as part of its proposal. The Smithville Commons land was hilly and difficult to build on, the proposal asserted, so part of the TIF money would be put toward leveling the property and installing sewer connections and water lines.
The leveling was completed, but the utility work never came to pass. Neither did construction of the buildings.
“The economy fell out in 2008, and after that it was real tough finding tenants,” says Jack Hendrix, planning director and community development director for the city of Smithville. “No tenants, no deal. It was bad timing. In the end, they [the developer] lost it to the bank. It’s been sitting empty like that ever since.”
A half-mile down 169 from the Smithville Commons site is a Price Chopper. Four years ago, Cosentino’s Food Stores, which owns 29 grocery stores in the Kansas City metro, purchased the grocery store — it was previously a Big V’s Country Mart — and rebranded it. Soon after, Cosentino’s and its surrogates approached the city about finding a larger site in Smithville on which to build a new and improved Price Chopper.
“They said they wanted to stay in Smithville and gave us general parameters and asked us to help them look,” Hendrix says. “We would throw out potential sites and let their engineers take a look. They wanted a site with visibility from 169. They needed a larger location where they could expand. They wanted more open access because traffic is heavy around the current Price Chopper. Things like that.”
This June, a proposal surfaced. Price Chopper would become the anchor tenant at a new development located on the old Smithville Commons property. The new development would also include space for a tractor dealer, a hardware store and 5 acres for other potential commercial tenants.
The primary liaison between the city of Smithville and Cosentino’s as they worked out what ultimately became the Smithville Marketplace proposal was Frank Ross III, who goes by Trip. Loyal Pitch readers may recognize the name. Driving home from a 2010 Chiefs game, young Trip blew through a stop sign at 35th Street and Euclid and T-boned a Kansas City, Missouri, Police Department vehicle. Both officers in the car were injured, and Ross’ blood-alcohol content was recorded as 0.185 — more than twice the legal limit. Ross had a couple of things going for him, though: An assistant U.S. district attorney was riding in his car at the time of the crash, and Ross’ father, Frank Ross Jr., is a big wheel at Polsinelli, one of the mightiest law firms in Kansas City. In the end, he skated. After entering a guilty plea, Ross received a generous 40 hours of community service.
Formerly a commercial real estate agent for Lane4, Ross recently struck out on his own with a commercial real estate company called Cadence, of which he is a principal. Ross has also, in the years since his joy ride, fortified his position by marrying into the Cosentino family. Not surprisingly, a recurring theme in Cadence’s short history — it was formed in 2015 — is the development, or redevelopment, of shopping centers featuring Cosentino-owned grocery stores. Also perhaps not shocking, given the fact that his father runs Kansas City’s go-to law firm for TIF deals: Cadence would seek public subsidies on the Smithville Marketplace proposal.
To recap: Trip Ross’ new real-estate firm (Cadence), represented by Ross’ father’s law firm (Polsinelli), would develop a property in Smithville for Ross’ in-laws (Cosentino’s). And in order for the deal to go forward, Cadence wanted TIF money from Smithville taxpayers. And it wanted a lot of it: roughly $10 million in tax breaks for a $35 million project.
Cadence’s argument for why it needs a handout of this magnitude rests on a few wobbly positions. First is that the Smithville Commons site is still blighted. This requires a person to believe that an empty patch of land constitutes blight. Second is that this shiny new development would, in the words of Polsinelli lawyer Evan Fitts, “create tremendous spinoff and economic benefits” for Smithville.
Tremendous? Certainly a new Price Chopper would generate economic activity — at that new Price Chopper. But what about the old Price Chopper, now empty? Buildings that size are difficult to backfill, because only a small pool of potential tenants is substantial enough to take over such a lease.
Hendrix says he believes a farm-supply store, such as Orscheln or Feldman’s, would be a good candidate for the old Price Chopper. But there’s already a glut of real estate on the market. Just drive a few miles south on 169 to Barry Road and you’ll see several empty big-box stores — and that’s in an area closer to Kansas City and more economically vibrant than Smithville.
“All this proposal does is just turn an existing grocery store from a tax-paying property into a TIF property,” Justus says. “We’re not gaining an employer and we’re not gaining any employees. Nobody’s coming to Smithville for this grocery store. My restaurant anchors downtown Smithville, and people come here from other places to eat. Now, I’m not suggesting I’m going to ask for a handout for my restaurant, but I could at least make an argument that I’m actually bringing people to town.”
“They’re moving a grocery store half a mile up the road,” Becker says. “Which, OK, the new Price Chopper will be nicer and have more organic items and an updated shopping experience. But it’s not bringing anything substantial to town. And what we’ll end up with is with a truly blighted area where the current Price Chopper is, because they won’t be able to find a tenant once they leave.”
A similar chain of events recently occurred in nearby Kearney. Cosentino’s bought a Big Value grocery store, turned it into a Price Chopper, ran out its lease, and then received a TIF to build a new Price Chopper. The old Price Chopper sat vacant for two years, until the school district finally bought it — meaning it’s financial dead weight now, publicly owned and thus no longer a tax-generating property for Kearney.
Speaking of schools: The Smithville Marketplace TIF is a rotten deal for the Smithville School District.
Smithville, like many metro towns north of the river, is growing. Its population has doubled over the past 15 years, to nearly 10,000 people. The overwhelming reason why more people are choosing to settle in Smithville is the school district: A 2015 city-contracted survey found that 95 percent of new residents attributed their move to the presence of good schools. In the last 10 years, the Smithville School District has grown by 400 students and is projected to grow by 400 more over the next decade. To keep pace, residents have in recent years passed bonds and a levy increase to fund the construction and renovation of school buildings.
Under ordinary circumstances, tax revenue from commercial properties in Smithville (which are taxed at 32 percent) would help shoulder the cost of educating all those new children. Given that the schools receive 66 percent of all property-tax revenue in the city, they’re the ones that stand to lose the most under a TIF, which freezes their main source of revenue for up to 23 years. Often, TIF proposals take this into account, and a city will bake into a TIF deal a guarantee that the school district won’t be adversely affected. This is achieved by stipulating that a very small percentage — sometimes none — of the property-tax revenues generated by a TIF can be diverted away from the schools. The deal will be structured so that sales taxes, not property taxes, are the primary resource used to pay the developer.
But within the Smithville Marketplace TIF, Cadence will capture 100 percent of all new tax revenue for the next 23 years. It will then slice off a mere 10 percent of those new revenues for the schools and contribute an annual payment in lieu of taxes (PILOT) estimated at $23,000. Originally, Cadence offered no PILOT, making this nominal concession — from Cadence’s point of view, anyway — a compromise.
Not compared to the old TIF at Smithville Commons, though. That TIF, on property abandoned after the market crashed in 2008, yielded a far more equitable deal for Smithville’s schools. It directed only 50 percent of the property taxes from the schools for 15 years. “As TIFs go, the TIF negotiated at Smithville Commons in the mid-2000s was a reasonably fair compromise, and the district was prepared to support a new TIF that had those terms,” Todd Schuetz, superintendent of the Smithville School District and a member of the TIF Commission, tells The Pitch. “We didn’t know they were going to ask for 100 percent over 23 years until they passed out the project materials at that meeting. We were blindsided.”
A closer look at those materials doesn’t inspire confidence in the integrity behind the request for a $10 million public subsidy. Does $56,000 per acre sound like a reasonable price for land in Smithville, Missouri? That’s what Cadence has proposed: $3.7 million in tax dollars to buy a 66-acre site with a fair-market value of $460,000.
Cadence also retains the right to sell pads within the site (again, a site taxpayers are paying for Cadence to purchase) to any entity it chooses, keeping all of the profit.
There’s more: Smithville taxpayers are also paying a substantial portion of the construction costs of the new Price Chopper. Usually TIF monies go toward a project’s necessary public improvements (water, sewers, roads, etc.). At Smithville Marketplace, though, the plan calls for the city to pay $1.7 million toward the construction of a private business.
Pretty sweet deal — presuming you work for Cadence or Cosentino’s.
In Smithville, as in most places, TIF proposals are heard first by a local TIF commission, and then by the city’s governing body — in the case of Smithville, the Board of Aldermen. On July 12, Ross and Polsinelli lawyer Evan Fitts presented their plan to the Smithville TIF Commission. It passed, 6-3, with representatives from the schools and the library voting against. Less than a month later, the full Board of Aldermen heard the Cadence pitch.
In a testament to either the civic fluency of Smithville residents or the increasingly abysmal reputation of TIFs, the Cadence plan attracted a healthy opposition at these meetings. Many, like Becker, cited direct experience with TIFs.
“I’ve been working in the field of taxpayer-financed projects for 25 years, and I’ve seen a lot of these presentations,” Matt Webster told the aldermen. “You should reject this or, at the very least, delay it. Hollowing out a school district to pay for your development is considered poor practice virtually everywhere.”
Webster — a vice president and director of capital markets for Ameritas Investment Corporation; not exactly Karl Marx — also noted that the two largest TIF districts north of the river (the Shoal Creek TIF and the KCI Corridor TIF) both hold school districts harmless by collecting only sales-tax revenue. Webster further objected to the inflated prices Cadence was asking the city to pay for the land and the property.
“Some of these budget items are simply unconscionable,” Webster said. “You could have them [Cadence and Price Chopper] build their own store, or build on their own land, and make the school district whole. This TIF will create a precedent where, I promise you, everybody who comes after will ask for the same deal.”
Steve Wolcott, a former school board president who sat on the TIF Commission when Smithville Commons was approved, also registered a dim view of Cadence’s proposal.
“You’re taking a significant taxpayer in this district [Price Chopper] and moving it to a tax-free zone,” Wolcott said. “At minimum, the developer should be agreeing to hold the school district harmless. Not by a percentage, but a hard dollar amount in sales-tax revenues that might be lost and also in property tax revenues. This could cause severe economic hardship to a school district that’s trying to keep ahead of future development.”
Ross and Fitts told the aldermen at the meeting in August that they were working on a short timeframe to get the deal done. The second-largest potential tenant in the proposed development, Heritage Tractor, was looking to consolidate its two locations (one in Kearney, the other in Platte City) inside Smithville city limits, but needed to know if it could count on Smithville Marketplace to be its new home. For that reason, Ross and Fitts claimed, a vote was necessary that night. Excessive deliberation regarding the terms of the TIF would compromise Cadence’s ability to lock down Heritage.
“They say they’ve been working on this for four years, and yet now we have to rush it through in one night?” asked Ruth Dickinson, a Smithville resident who previously served on a TIF commission in Nebraska. “I’m concerned that our city is being taken advantage of.”
All indications are that Dickinson was correct. Though one alderman, Cory Booth, made a motion to delay the vote, it failed. When the time came, all but one of the aldermen supported the Smithville Marketplace TIF.
Within a week, Heritage Tractor announced that, actually, it would not be moving into the Cadence development. It had bought a building down the road instead.
Fitts at Polsinelli did not respond to multiple requests for comment. Neither did Ross at Cadence. Ditto Cosentino’s. After initially agreeing to an interview, Smithville Mayor Brian Fullmer stopped replying to phone calls and emails. Alderman Bob Arnold passed me off to the city’s development department. Alderman Melissa Wilson, the lone vote opposing the Cadence TIF, would not elaborate on her decision other than to say that she felt more time was warranted before votes were cast.
Alderman Booth, who favored delaying a decision in August but ultimately voted in favor of the TIF, defends his vote as a compromise to ensure Price Chopper’s continued presence around Smithville.
“They don’t have to go far to jump Smithville city lines,” Booth says. “They said they have to expand to compete. In their current location, they can’t expand, because they don’t own the building. That’s a danger. Also, Smithville Commons has been an eyesore for 11 years now, and this was our first offer on it.”
Hendrix, the Smithville development director who was instrumental in assembling the deal, emphasizes the previous lack of interest in the Smithville Commons site.
“I think one frustration from opponents is that the ‘but-for’ test has not been met,” he says. “As in, would this development occur if not for the city giving the developer these incentives? My evidence there is that this spot has sat vacant for 10 years.”
But why the haste? Why not craft an incentives package that won’t starve the schools? Or one that arrives at a sale price for the land that doesn’t so transparently favor the developer?
“End of the day, the developer profit is specifically identified in the plan,” Hendrix says. “It’s 8.2 percent, which is on the low end of the trigger for these types of deals.”
Like just about everything related to this plan, though, that figure is misleading. The 8.2 percent profit does not take into account the cool $1 million in “developer fees” Cadence has carved out for itself in the plan. In other words, Cadence will make a million dollars, plus an 8.2 percent return. On a project for which it is putting up zero equity.
“Was it rammed through? I would say yes,” Booth says. “But I don’t think that deal was going to get any better. If you believe what the developer and city staff said about the difficulties of developing that property, there wasn’t much wiggle room there. I’m not saying we didn’t get hornswoggled — maybe we did. But that’s why I voted the way I did. I believed the developer and I believed what city staff told us.”